Will Dot.Coms Usurp Standard Lending?

Brokers, lenders and borrowers can spend hours chasing after paperwork and each other. Shopping center developers, for example, often jump through hoops to obtain environmental assessments, title insurance and appraisals. For them, finding the best quote often means protracted exchanges with multiple firms.

But what if financing could be obtained by pushing a few buttons? The process has always been about personal relationships - the sense of security that comes from dealing with trusted people and institutions. Now, however, Internet companies claim to be laying the groundwork for major changes in the way deals get done. Dot.coms such as CoStar, FinancingSources, Redbricks and EquityCity offer services designed to bring together the key players in a deal.

Skeptics abound The Internet companies predict that major transactions will one day be completed online without any human interaction. But such scenarios aren't likely to occur anytime soon. Even the dot.coms concede that commercial real estate remains unconvinced about financing via the Internet. "We're just at the beginning of this," says Brian Nuernberger, e-commerce marketing director for Denver-based FinancingSources.com, which operates an online loan application system called Cyberloan Network. "A lot of the big companies are still skeptical."

The Internet start-ups are working to gain the trust of commercial real estate firms, many of which are accustomed to long-established networks of business contacts. "In this market, it's all about trust," says Ed Lubieniecki, an e-commerce expert with the Los Angeles office of Ernst & Young. "These Internet companies are never going to dominate the market. But on the other hand, this is not unknown territory that they're moving into. In some cases, they're putting together people who need a service with providers that offer that service."

Tearing down walls with Redbricks.com Among the contenders is Redbricks.com of Bethesda, Md. The site, which went online in May '99, provides 24-hour access to preliminary loan quotes, mortgage financing and other services. "Traditionally, it's been up to the borrower to sell his loan to the lender, or the borrower has said, 'I don't have time to deal with six lenders, so I'll pay a broker,'" explains spokesman B.J. Singh. "We've gone to the lenders and said, 'Let's change the paradigm.'"

Redbricks.com users can obtain a preliminary loan quote in about 45 seconds. Based on the results, they can fill out a more extensive application. "During the pre-quote, the borrower doesn't know who the lender is," Singh explains. "But with the actual quote, he'll receive a prompt that says, 'We have six lenders interested in your project. Here are the highest and lowest averages.'"

In addition to its relationships with lenders, Redbricks.com also works with a variety of engineering, title insurance, appraisal and other firms. "All borrowers have to do is fill in some questions and send a single request for a quote from all of these companies," Singh says.

The site also lets users create homepages updated with market news and research. Redbricks.com has logged more than 1 million hits and now has up to $60 million in loans under application, according to Singh.

Changing with technology Each of the new financing sites is working to find the right niche. Denver-based EquityCity.com focuses on bringing developers and lenders together in an online equity market. "In every real estate transaction, securing equity is the hardest thing," says founder Mark Quam. "We're allowing developers and buyers to get back to what they're good at doing: finding, building, buying and upgrading properties."

FinancingSources.com focuses on using technology to make online exchanges as accurate as possible. Other sites merely act as middlemen, e-mailing loan requests to lenders without confirming data or providing instant quotes.

In the end, Lubieniecki predicts, some of these businesses will fold because similar services are widely available. He says the dot.coms must distinguish themselves by showing that what they offer is both necessary and unique. That task may sound daunting now. But as time passes and the world becomes more accustomed to the Internet, online lending will become an easier sell.